CMP Rs548, Target Rs602, Upside 10%
GCPL continued its strong growth momentum during Q4 FY12 by recording 30.9% yoy growth in revenues at Rs13.2bn – marginally below our expectations of Rs13.6bn. The growth was primarily led by a healthy 20% yoy growth in the domestic business, which contributes ~59% to consolidated revenues.
Strong growth across all businesses
International business reported strong 49% yoy increase in revenues at Rs5.2bn primarily driven by 30% yoy growth (comprising ~21-22% yoy constant currency growth) registered in Megasari in Indonesia (at Rs2.6bn, contributing 50% to revenues) and operating margins of 20.7% - an increase of 100bps yoy. The strong revenue growth was mainly on back of distribution expansion and healthy performance of new product launches. The Middle East business registered revenues of Rs60mn during the quarter.
Africa business (contributing 25% to international business revenues) saw the full inclusion of the Darling acquisition. This business (comprising Rapidol, Kinky, Tura and the Darling Group) clocked revenues worth Rs12.8bn and OPM of 19.3% during the quarter. Low cost raw material inventory, favourable mix and seasonality in the Darling Group’s hair extensions business cushioned operating margins. The management has indicated that these margins are unlikely to sustain and the business would trend towards Darling Group’s historical average margins of ~20-22%. Latin American business of GCPL, contributing 16% to international business revenues recorded strong 29% yoy revenue growth at Rs820mn (constant currency growth of ~22-23%) and operating margins of 16.3%, ~300bps yoy expansion. The European business contributing 9% to international business revenues recorded 21% yoy growth at Rs480mn and operating margins of 10.5% (up 470bps qoq) during Q4 FY12.
GCPL witnessed a 170bps expansion in operating margins during the quarter at 18.8% fueled by 210bps drop in overhead cost due to lower sales promotions and operating leverage and synergies of the merger of the GCPL and Sara Lee businesses. The expansion could have been even better but for 200bps/90bps increase in staff (higher variable payout) and advertising (on the hair colour launch) cost respectively. Despite ~33% dip in other income, consolidated net profit for the quarter registered a strong 25% yoy growth at Rs1.7bn driven by strong topline growth coupled with improved operating efficiency. Adjusted net profit after extraordinary income of Rs243mn and minority interest, increased by 36% yoy to Rs1.9bn. Adjusting for the extraordinary income of Rs250mn (related to termination of Brylcreem manufacturing and distribution license), forex loss of ~Rs8mn and minority interest, APAT increased by 36% yoy to Rs1.9bn.